In 2017, US health care spending reached $3.5 trillion, or $10,739 per person: 17.9% of the US gross domestic product (GDP). Per a recent JAMA study, as much as $935 billion of that spending was wasted. Based on their review of 54 academic papers, government reports and industry documents, the authors identified six domains of healthcare waste: administrative complexity, pricing failure, failure of care delivery, overtreatment or low-value care, fraud and abuse, and failure of care coordination. For more detail on these domains of waste and examples of overspending, go here.
Categorizing and calculating healthcare waste is an excellent first step to fixing the problem of waste. The next step is figuring out who’s responsible, and why. This table might help:
The main culprits appear to be hospitals, physicians (who typically authorize or prescribe clinical services), drug companies, and private insurance companies. But appearances can be deceiving. Take the “net cost” of insurance companies, which is mostly administration, marketing, and profit. Seems wasteful, but it represents just 5% of the $1.2 trillion private insurers spent in 2017. Plus, economists have estimated that private insurance plans “provide better-quality medical care at 10% less cost” than Medicare (controlling for patient characteristics). Medicare also loses tons of money on fraud and abuse (about 12% of total expenditures). Not so private insurers. Once you factor in savings from better oversight and fraud prevention (thanks to bigger administration budgets and the profit motive), private insurers waste less than the Medicare system.
Then there are the pharmaceutical and biotech companies. Yeah, they fight government attempts to rein in what they charge for drugs. But it’s hard to say how much the high prices reflect political clout as simply the cost of bringing a drug to market in the US. Besides, it doesn’t really benefit politicians to be seen coddling Big Pharma.
That brings us to hospitals and doctors. Hospitals charge private insurers more than twice the Medicare rate. They do this because they can, due to the monopolistic hold they have on local healthcare markets. And hospitals fight serious reform efforts to lower what they charge. Successfully, I might add. Because of the voting power of their patients and the political clout of their physicians. To quote from a history on the growing clout of the medical lobby:
“Physicians’ political power drew on voters and politicians’ trust in the profession. Having established professional trust, physicians leveraged this to obtain broad-based social trust in their leadership of health care policy. Physicians had a large degree of direct political power through state legislatures and also in federal policy making. …They are ideally positioned to lobby Congress, representative-by-representative, and well organized within professional societies. Physicians also enjoyed good general access to government decision makers.” Laugesen and Rice (2003) “Is the Doctor In? The Evolving Role of Organized Medicine in Health Policy
Serious reforms to cut healthcare spending would entail cutting the pay, hours, or jobs held by doctors and other healthcare workers. Consider*:
Nope, the AMA won’t give in without a fight.
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* Of course, physicians earn way more than $100K a year. The occupational category of “Health Diagnosing and Treating Practitioners” includes lower-paid professional such as nurses and physical therapists, which brings down the mean pay for that category. Also, almost half the physicians in the US are business owners, and the numbers and income of these physicians are not included in the table.
References:
Barlas S. Are Hospital Prices a Bigger Problem than Drug Prices? Congress Doesn't Know, Doesn't Care. P T. 2019;44(5):259–299. https://www.ncbi.nlm.nih.gov/pmc/articles/PMC6487976/
Laugesen, MJ and Rice, T “Is the Doctor In? The Evolving Role of Organized Medicine in Health Policy”. J Health Politics, Policy, and the Law 1 June 2003; 28 (2-3): 289–316. doi: https://doi.org/10.1215/03616878-28-2-3-289
Shrank WH, Rogstad TL, Parekh N. Waste in the US Health Care System: Estimated Costs and Potential for Savings JAMA. Published online October 07, 2019.